RBI stash, NRI cash in Govt’s booster plan | business | Hindustan Times
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RBI stash, NRI cash in Govt’s booster plan

business Updated: Oct 14, 2008 21:03 IST
HT Correspondent

Overseas borrowing could get easier and non-resident Indian remittances made more attractive under a grand plan by the government to pump more cash to fuel growth in the economy — and economic mandarins are also set to unleash a mountain of cash piled up as market stabilisation deposits in recent times when foreign funds flooded the economy.

This could be the rainy day to unwind the deposits that built up as the central bank, fearing inflation created by an excess supply of money, sucked off with bond issues.

In October alone, the Reserve Bank of India has already released around Rs 8,000 crore through unwinding of the Market Stabilisation Scheme (MSS).The RBI had mopped up about mover than Rs 1,50,000 crore during the current year as inflation remained above a worrisome 12 per cent mark before beginning to decline in the past couple of weeks.

The specially constituted group headed by Finance Secretary Arun Ramanathan would meet on Wednesday in Mumbai and submit an assessment report on liquidity requirements this week.

The panel met on Monday and discussed several liquidity infusion measures including a further cut in cash reserve ratio (CRR) and the repo rate—the rate at which banks borrow from the central bank to meet liquidity requirements.

The repo rate has been increased thrice since March 2007 and now stands at 9 per cent and many are expecting a cut in rates.

RBI has announced a special 14-day repo (to commercial banks) at 9 per cent to offer Rs.20,000 crore with a view to enabling the banks to meet the liquidity requirements of mutual funds.

On overseas loans, sources said further easing of norms were under consideration.

“The industry is demanding that all projects with cost in excess of $ 500 million should be allowed to borrow up to $150 Million for meeting rupee capital expenditure,” said a government source.

Finance Minister P Chidambaram said the measures announced by various governments and central banks have not only infused greater liquidity into the markets and helped restore confidence to a “significant degree.”

“I hope that the same sense of optimism and confidence will be visible in the Indian markets too,” he said.

The RBI has cut the cash reserve ratio by 1.5 percentage points to 7.5 per cent. This would inject about Rs 60,000 crore into the system amidst rising liquidity crunch.

A rise the interest rate on NRI deposits is also being discussed.

“If required the government and the RBI could plan something similar to the India Millennium Deposits or the Resurgent India Bonds. These were special deposits for non-resident Indians with returns higher than that available elsewhere,” said a source, who did not wish to be identified.

All eyes are now on the October 24, when Reserve Bank of India (RBI) governor D.Subba Rao presents the mid-term review of the credit policy.

A possible cut in the statutory liquidity ration (SLR) from the current 24 per cent is also under consideration.